Insuranceplanscomeinabewilderingvarietyofschemes.Findoutthebestoptionforyou.Insuranceplanningisanimportantaspectoflifeforeveryworkingindividualorfamily.Takinganinsurancepolicyisimportantnotjustasasafeguardagainstunprecedentedcalamities.Italsoensuresthefuturefinancialwellbeingofonesdependents.Havingsaidthis,buyinganappropriateinsurancepolicyisnoteasy.Thereareanumberofcompaniesofferingabewilderingarrayofschemesandinsurancepolicies.Asanaveragebuyer,youmaybeatalosstodecidewhattherightinsuranceplanisrightforyou.Belowaresometipstoguideyou.InthisarticleLifeversusTermUnit-LinkedInsurancePlans(ULIPs)ChildInsuranceLifeversusTermAquestionthatmostpeopleaskiswhethertogoinforlifeinsuranceorterminsurance.Bothhavetheiradvantagesanddisadvantages.LifeLifeinsuranceisquitepopular,especiallyinIndia.Itcoverstheentirelifeofthepolicyholder.Apartfromthat,italsooffersalumpsumpaymentafterapre-determinedperiod;thismakeslifeinsurancepolicyaninvestmentvehicle.Also,alifeinsurancepolicyenablestaxsavings.However,lifeinsurancepremiumscostmorethanterm.Also,lifeinvestmentreturnsaregenerallyatthelowerendofthespectrumoffixed-incomeinvestmentoptions.Incaseapolicyholderdiscontinuesthepolicymidway,thereservebuiltupfrompremiumsalreadypaid,isusuallyreturnedtohim.Estimatingthefuturefinancialstatusofonesdependentsisanimportantconsiderationwhiletakingalifeinsurancepolicy.Lifeinsuranceisespeciallyappropriateforpeoplewhomaynothavesavingswhentheyareolder,orrequiretoprovideforfinancialdependents.TermUnlikelifeinsurance,atermpolicycoversthepolicyholderonlyforafixedperiod.Terminsurancepolicydoesnotofferinvestmentoptions—therearenoreturnsifthepolicyholdersurvivesthetermofinsurancecover.However,terminsuranceismuchcheaperthanlifeinsurance.Thus,aterminsurancemeansmoneyissavedwhichcanbeinvestedinanyhigherreturninvestmentplans.Also,interminsurance,thepolicyholderdoesnotsufferfinanciallyifhediscontinuesthecontractmidway.Terminsuranceisidealforyoungerworkingpeople.Theycansavemoneyonthelowerpremiumrequiredinterminsuranceschemes;thismoneycanthenbebetterinvestedinhigherreturninvestmentoptionssuchasmutualfunds.Unit-LinkedInsurancePlans(ULIPs)Aunit-linkedinsuranceplan(ULIP)isasystematicinvestmentplanthatoffersbothinsuranceandinvestmentreturns.Inaddition,ULIPsalsoofferthepolicyholderthechanceofcontinuouslymonitoring,planning,anddirectingtheprotectionandsavingsaspectsofhispolicyaccordingtohisneedsatanypointoftime.Thus,aULIPpolicyisanexcellentopportunityforthepolicyholdertooptimisehisinsuranceandinvestmentplanatdifferentstagesofhislife.WhileinvestinginaULIPpolicy,theprospectivebuyerneedstoconsiderthevariouschargesthatwillbeapplicableonthepolicy,thefundmanagementoptionsoffered,andtheflexibilityfeaturestheyallow.Itisalsoimportanttodeterminethereputationandperformanceoftheproductsofthecompanyfromwhomyouarebuyingthepolicy.ULIPsareappropriateforpeoplewhohavebasicknowledgeoftheequitymarket.Aprospectivepolicybuyerwouldneedtoresearchthemarket.Hewouldalsoneedtounderstandthefeaturesofferedbythedifferentpoliciesandtheirapplicationtohisindividualneeds.Oncehebuysthepolicy,hewouldneedtoadequatelymonitoritsperformancetobeabletomouldittohisadvantage.ThosewhoarenotconversantwiththefinancialmarketsmayneedtoworkcloselywithaconsultanttooptimisetheirgainfromaULIPpolicy.ChildInsuranceChild-specificinsurancepoliciesofferasavingsplanforparents.Theypayreturnsthatarespecificallycateredtohelpingthechildwhenhegrowsupintermsofpayingfortheireducation,marriage,etc.Childinsurancepoliciesarebroadlyoftwotypes.Inone,thechildisinsuredandreceivesalumpsumamountuponhisbecominganadult.Intheeventoftheunfortunatedeathofthechild,thenomineewouldreceivethepremiumalongwithinterest.Intheothertype,theparentisinsured.Thechildgetsthereturnseitheruponthedeathoftheparentoruponthematurityofthepolicy.Parentsshouldconsidertheirfinancialstatusandthefutureneedsoftheirchildwhileoptingforchildinsurance.
Insurance plans come in a bewildering variety of schemes. Find out the best option for you. Insurance planning is an important aspect of life for every working individual or family. Taking an insurance policy is important not just as a safeguard against unprecedented calamities. It also ensures the future financial well being of one's dependents.
Having said this, buying an appropriate insurance policy is not easy. There are a number of companies offering a bewildering array of schemes and insurance policies. As an average buyer, you may be at a loss to decide what the right insurance plan is right for you. Below are some tips to guide you.
Life versus Term
A question that most people ask is whether to go in for life insurance or term insurance. Both have their advantages and disadvantages.
Life Life insurance is quite popular, especially in India. It covers the entire life of the policy holder. Apart from that, it also offers a lump sum payment after a pre-determined period; this makes life insurance policy an investment vehicle. Also, a life insurance policy enables tax savings.
However, life insurance premiums cost more than term. Also, life investment returns are generally at the lower end of the spectrum of fixed-income investment options. In case a policy holder discontinues the policy midway, the reserve built up from premiums already paid, is usually returned to him. Estimating the future financial status of one's dependents is an important consideration while taking a life insurance policy. Life insurance is especially appropriate for people who may not have savings when they are older, or require to provide for financial dependents.
Term Unlike life insurance, a term policy covers the policy holder only for a fixed period. Term insurance policy does not offer investment options—there are no returns if the policy holder survives the term of insurance cover.
However, term insurance is much cheaper than life insurance. Thus, a term insurance means
money is saved which can be invested in any higher return investment plans. Also, in term insurance, the policy holder does not suffer financially if he discontinues the contract midway. Term insurance is ideal for younger working people. They can save money on the lower premium required in term insurance schemes; this money can then be better invested in higher return investment options such as mutual funds.
Unit-Linked Insurance Plans (ULIPs)
A unit-linked insurance plan (ULIP) is a systematic investment plan that offers both insurance and investment returns. In addition, ULIPs also offer the policy holder the chance of continuously monitoring, planning, and directing the protection and savings aspects of his policy according to his needs at any point of time. Thus, a ULIP policy is an excellent opportunity for the policy holder to optimise his insurance and investment plan at different stages of his life.
While investing in a ULIP policy, the prospective buyer needs to consider the various charges that will be applicable on the policy, the fund management options offered, and the flexibility features they allow. It is also important to determine the reputation and performance of the products of the company from whom you are buying the policy.
ULIPs are appropriate for people who have basic knowledge of the equity market. A prospective policy buyer would need to research the market. He would also need to understand the features offered by the different policies and their application to his individual needs. Once he buys the policy, he would need to adequately monitor its performance to be able to mould it to his advantage. Those who are not conversant with the financial markets may need to work closely with a consultant to optimise their gain from a ULIP policy.
Child Insurance
Child-specific insurance policies offer a savings plan for parents. They pay returns that are specifically catered to helping the child when he grows up in terms of paying for their education, marriage, etc.
Child insurance policies are broadly of two types. In one, the child is insured and receives a lump sum amount upon his becoming an adult. In the event of the unfortunate death of the child, the nominee would receive the premium along with interest.
In the other type, the parent is insured. The child gets the returns either upon the death of the parent or upon the maturity of the policy. Parents should consider their financial status and the future needs of their child while opting for child insurance.
